EGYPT'S EXPECTED CHANGES IN EXPORT SUPPORT

UNCLAS CAIRO 001722 SIPDIS SENSITIVE SIPDIS DEPT FOR NEA/ELA E.O. 12958: N/A TAGS: ETRD ECON EG SUBJECT: EGYPT'S EXPECTED CHANGES IN EXPORT SUPPORT QUESTIONABLE UNDER WTO RULES ¶1. (U) During a meeting on May 23 with key economic advisors and export industry leaders, Minister of Trade and Industry Rachid Rachid announced he will consider reorganizing the Export Support Fund, according to press accounts. The Export Support Fund is designed to increase the quantity and quality of Egyptian exports by providing production subsidies and other benefits to certain industries that are not in Qualified Industrial Zones (QIZ). The Fund focuses on Egyptian textiles and automobile parts. Many factories located within non-QIZ industrial zones are receiving this support to encourage investment from German, Russian, and Chinese companies. ¶2. (SBU) A USAID contractor working for the Ministry said that the program has been dormant in recent years and that it is unclear how Rachid's reforms will take shape. In early 2007, the Ministry announced that Export Support Fund production subsidies and reduced rents on land would be scaled down over the course of five years, contingent upon selected industries achieving export targets. Subsidies begin at 10 percent on the value of the exports and will be gradually reduced to 6 percent in the fifth year before they are ultimately eliminated. -------------- Dubious WTO Compliance? -------------- ¶3. (SBU) In response to our concerns about the program, the contractor was unsure whether the changes would be consistent with the GOE's WTO obligations, although Ministry officials claim their export support is technically compliant. We will continue to monitor this program and any changes to evaluate their compliance with Egypt's WTO obligations. RICCIARDONE